Today's younger Chinese may take for granted the country's huge leap forward as an automotive producer.

But those who are old enough to remember the pre-1978 era might be forgiven for standing by the roadside and marveling at all those shiny new cars roaring by.

Domestic vehicle sales hit a record 8.79 million units last year, making China the world's second-largest vehicle market.

The booming sales volume represents enormous growth, given that 30 years ago only 5,000 vehicles were sold in China every year. Incomes were low, car models were limited, and ownership restrictions held back the market.

In those days, China's auto industry mainly turned out trucks and the domestically made, low-production Red Flag sedans, which began to be built in 1958 for high-ranking Chinese officials.

The industry got its first major boost when former Chinese leader Deng Xiaoping, the architect of China's reform and opening-up policy, wrote instructions in a report in 1978 that allowed the establishment of joint ventures in the automotive industry.

The development came as China was hungry for foreign capital, technologies and management expertise to improve its inefficient industries after the devastating effects of the "cultural revolution" (1966-1976).

The government decided to boost the automotive industry because of its strategical position in the country's overall industrial mix. But at that time, almost no international auto makers were willing to invest in China because of concern over small market demand.

At the beginning, Volkswagen, Europe's biggest car maker, was the only international giant to agree to set up joint ventures in China.

But the negotiations were difficult because China lacked experience in modern business management along with legal and patent protection. It took more than six years from the first contacts between Volkswagen and China's automotive industry before a cooperation deal was signed. The nation's first car venture, Shanghai Volkswagen Automobile Co, was finally established on March 21, 1985.

Setting the mold

The cooperation also set several precedents for Chinese industry, including the 50-50 shareholding structure that became part of industrial policy as well as the first version of the Sino-foreign equity joint venture law.

The VW Santana sedan, which was the first car to roll off the venture's assembly line, long dominated China's auto market, holding nearly an 85-percent market share for 10 years. The Santana's latest generation still records sales of more than 10,000 units a month.

The industry entered a new stage in 2001 when it began to benefit from rising personal wealth tied to China's rapid economic expansion. The lifting of strict controls on vehicle purchases also paved the way for more people to buy a car.

Vehicle sales increased from 2.73 million units in 2001 to 8.79 million last year. The annual sales growth for passenger cars has stabilized at about 25 percent over the past three years, compared to single-digit growth in mature markets in North America and Europe.

Vehicle exports are also taking off as a result of the country's low-pricing formula and the debut of made-in-China vehicles at international auto shows. Today, more than 130 vehicle makers are rolling out hundreds of models in China, and the growing market demand has lured most of the world's auto makers to set up joint ventures in China.

Among them, Toyota Motor Corp aims to sell 1 million vehicles in China by 2010 after selling more than 700,000 units last year.

"China's auto industry has developed with its own characteristics," said Zhang Xiaoyu, chairman of The Society of Automotive Engineers of China.

"The purpose of the reforms in the automotive industry has shifted from purely attracting foreign investment to introducing advanced technology and creating its own competitiveness."

The government has called on domestic car makers to go beyond assembling vehicles based on their foreign partners' pedigrees and developing their own vehicles for both the domestic and global markets.

Chinese car makers have thus begun to unveil models based on their own research and development. They've also moved to expand through overseas mergers and acquisitions.

In October 2004, Shanghai Automotive Industry Corp paid US$500 million to take a 48.9-percent stake in South Korea's Ssangyong Motor Corp, completing the first overseas acquisition by a Chinese auto maker.

SAIC also bought the intellectual property rights for the Rover 75 model. The company's first self-developed car, the Roewe 750 mid-to-high-class sedan, was unveiled in 2006.

By 2010, the nation's largest car maker aims to develop more than 30 self-branded models, from compacts to luxury sedans. The production of these models is expected to account for 30 percent of the company's total output.